Until the recent budget, National Insurance at 11% formerly applied only to the first £34,840 of your income. On the remainder of your income above and beyond that, your National Insurance contributions were just 1%.
However, this £34,840 threshold has now increased to £43,888, so that there is an additional £9,048 where national insurance takes away 11% of your earnings. That adds an additional £995 to your annual national insurance contribution.
In the face of this increase, it’s really worthwhile for those in this salary bracket to look at streamlining their retirement planning, by considering a “salary sacrifice”.
This is where an employee takes a voluntary reduction in salary to reduce their exposure to National Insurance payments. They request instead that their employer pay more into their pension.
Not only have they reduced their National Insurance contribution, and increased their pension contribution, but their nett salary remains unchanged.
For example, a man earning a salary of £41,000 can request his employer to reduce his salary by £3,000. Then he can take the national insurance savings that he and his employer are making, and, with his employer’s agreement, add them into his pension.
Employers are quite open to such a suggestion, since they are simply redirecting cash into the employee’s pension that they would have had to pay to the government in any case.
